Tight U.S. crop supply squeezes ADM profits

CHICAGO Tue Aug 6, 2013 9:38am EDT

CHICAGO (Reuters) - Archer Daniels Midland Co (ADM.N), one of the world's largest agricultural trading houses, said on Tuesday that quarterly earnings fell as crop supplies tightened after the worst U.S. drought in more than half a century left harvests devastated.

ADM and rivals such as Bunge Ltd (BG.N) are anxiously awaiting the autumn harvests to replenish stockpiles, with U.S. farmers expected to bring in record-large corn and soy crops.

"We'll be managing through tight crop supplies until the forecast large but delayed U.S. harvest," ADM Chief Executive and Chairman Patricia Woertz said.

ADM is among the four large players known as the "ABCD" companies that dominate the flow of agricultural goods around the world. The others are Bunge, Cargill Inc CARG.UL and Louis Dreyfus Corp LOUDR.UL.

The company, which profits by buying, selling, transporting and processing crops, reported net earnings of $223 million for the second quarter that ended June 30, or 34 cents a share. That was down from $284 million, or 43 cents a share, for the same quarter a year ago.

Adjusted earnings were 46 cents a share, up from 38 cents a share a year ago, and above earnings of 44 cents expected by analysts.

Revenue for the quarter was $22.54 billion, below Wall Street's expectations for $22.87 billion. A year ago, revenue for the same quarter was $22.68 billion.

The challenge from tight supplies was no surprise, as ADM in May warned that the second quarter would be "difficult."

Profits for agricultural services, including grain handling, merchandising and milling, dropped to $81 million during the second quarter from $123 million a year earlier.

Yet profits from producing ethanol rose to $97 million after posting a $61 million loss in the same quarter last year. Margins were profitable but volatile, according to the company.

"Overall, ADM had a decent quarter with some puts and takes," JP Morgan analyst Ann Duignan said.

Rival Bunge reported net earnings for the quarter that ended June 30, fell 58 percent from a year earlier to $110 million due to tight crop inventories.

GRAINCORP, COCOA DEALS

Investors are waiting for details on ADM's plan to buy Australia's GrainCorp Ltd (GNC.AX) for nearly A$3.0 billion ($3.1 billion) in a bid to expand its international footprint.

The takeover, announced in April, is the latest move in the rapid consolidation of the global grains sector amid intense competition to feed fast-developing countries like China.

ADM said it took a hit of $51 million, or 5 cents per share, in foreign-currency hedging losses related to the GrainCorp acquisition during the second quarter.

JP Morgan's Duignan, in a note, questioned whether the loss magnifies ADM's risk in acquiring the Australian company.

GrainCorp faces its own pressure on near-term results from lower grain production and in May posted an 11 percent fall in adjusted first-half profit.

ADM also is looking to sell its cocoa business, which posted a $58 million loss in the second quarter "due to lower margins on business contracted in earlier quarters," according to the company.

Cargill has explored the possibility of buying ADM's cocoa business, a source familiar with the situation told Reuters last month.

(Reporting by Tom Polansek; Editing by Maureen Bavdek)

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